David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

This assumes the shale gas revolution in the US actually happens. There are plenty of commentators who say it is a mirage. There’s lots of gas at the moment because there has been lots of drilling, but the decline rates are horrific (e.g. 60% decline in year one) and once the true cost of the well over the lifecycle becomes apparent investment will dry up and production will fall.

It’s just a story the USA is telling itself at the moment to feel good. Give it 18 months and the bubble will pop.

I’m with MontagueCapulet. The gas supply is real but return on capital for the small companies looks poor to horrific. The #2 Chesapeake is bleeding through the nose trying to sell off acreage and getting a third of what it expected. Debt is $12 billion. It is trying to restrict drilling cost below $6 billion but it is a tail chasing exercise. Each well costs up to $3m for a short well profit life of less than 3 years. It is one thing to drain an oil well for 20 years even at low rates of production after full capital return, but shale beds either require stimulation or re-drilling from the same pas at a different depth, or a new pad entirely.

Even if as some pundits state that depletion rates are horrendous it won’t affect the late comers. They will have the choice to commit or not.

There are CSG & Shale gas deposits globally. It has been both the tech., experience and supply infrastructure that acts as the main inhibitor. relative to other energy resources availability, prices and strategic considerations..

Regardles of these impediments, the global gas pricing mechanism is moving from regional hubs to global pricing, like oil.

Don’t forget, that renaging on long term contracts is the norm, relative to market. That or renegotiation or cancellation. No one likes cancellation.

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